China’s Love/Hate Relationship with Bitcoin and Crypto


It’s impossible not to follow bitcoin and cryptocurrencies without noticing how important the Chinese variable is and has been, despite the authorities in China having little love for digital currencies. In other words, the “love” dimension of the relationship is represented by the fact that a lot of Chinese INVESTORS want to have bitcoin/crypto exposure, either by simply purchasing crypto and holding or even by taking things one step further and making money in crypto-related fields such as mining. It’s important to understand that while in 2018, bitcoin prices fell (well) below the mining profitability level when it comes to European or US operations, mining was still profitable in China due to miners being quite savvy when it comes to getting their hands on cheap energy. In some cases, even via “outside the box” methods such as engaging in contractual relationships with hydroenergetic plants so as to acquire their excess energy at favorable rates.

As can be seen, there have been two dimensions with respect to how money can be made in China via crypto: on the one hand, the fact that more and more Chinese citizens have excess capital that they are eager to invest (among other things, yes, in crypto) and on the other hand, the fact that various businesses such as mining have managed to develop an edge due to China-related advantages. As an additional tidbit on mining, it’s downright ironic that even bitcoin, which is considered the epitome of decentralization, is actually in a highly centralized paradigm when it comes to mining, with Chinese miners controlling a huge percentage of the hash power.

Unfortunately, it’s time to move on to the “hate” dimension and that is represented by the fact that the authorities in China are not exactly thrilled with the crypto world. Politically-speaking, it should come as no surprise in light of the fact that the Chinese system revolves around centralization, whereas the main selling point of bitcoin and other crypto projects tends to be the exact opposite, their decentralized nature.

Secondly, Chinese authorities are also worried about the capital flight dimension, especially when it comes to situations such as the 2015-2016 stock market turbulence they’ve experienced. Simply put, they want Chinese capital to remain in China and are therefore less than willing to make the lives of those who want to diversify easy. On the contrary. As such, they have resorted to all sorts of measures that revolve around “banning” bitcoin and crypto-related activities in one way or another. To illustrate this, it’s worth noting that a few years ago, Chinese crypto exchanges (platforms through which cryptocurrencies can be bought and sold) were among the top players in the crypto exchange world, whereas nowadays… let’s just say that is hardly the case anymore due to the players in question being essentially forced to change jurisdiction.

The same principle is valid when it comes to other areas such as mining. At the end of the day, miners need to live with the fact that lower energy prices and various other opportunities sometimes come at the expense of legislative clarity and China is a textbook example to that effect. To explain this by referring to extreme examples, let’s assume you want zero headaches as a bitcoin or crypto miner and therefore choose to set up shop in a Western jurisdiction where the legal framework is crystal-clear. You’ll have additional piece of mind on the one hand but on the other hand, running that business in a profitable manner will prove to be a headache because pretty much all costs will be higher (from electricity costs to staff-related ones) and you will have to compete with less risk-averse miners who are rewarded for taking on a higher degree of risk with lower costs.

And speaking of lower costs, it’s time to go to the opposite end of the spectrum, with the most “adventurous” miners being able to even establish less than legal businesses in Venezuela and take advantage of quasi-free energy. Of course, needless to say, there will be a high price to pay if or when they are caught. China can be considered somewhere in the middle at this point and as its dominance in the mining world makes clear, businesses are willing to accept the risks (legislative ones, especially) in light of them being offset by the rewards (lower energy costs, lower infrastructure maintenance costs, lower wages and so on).

After drawing the line, can China’s relationship with bitcoin and crypto be described using just one word? Yes, with “volatile” being the most relevant choice. Should we aim for a two-word explanation instead, “barely tolerated” would be it. Yet despite the (many) risks involved, as the numbers show, quite a few risk-tolerant Chinese entities are more than willing to embrace bitcoin/crypto in China and as such, an analysis of the cryptocurrency world which doesn’t include China is incomplete at best or useless at worst.

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